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The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy

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  • Dan Andrews
  • Chiara Criscuolo
  • Peter N. Gal

Abstract

In this paper, we aim to bring the debate on the global productivity slowdown – which has largely been conducted from a macroeconomic perspective – to a more micro-level. We show that a particularly striking feature of the productivity slowdown is not so much a lower productivity growth at the global frontier, but rather rising labour productivity at the global frontier coupled with an increasing labour productivity divergence between the global frontier and laggard (non-frontier) firms. This productivity divergence remains after controlling for differences in capital deepening and mark-up behaviour, suggesting that divergence in measured multi-factor productivity (MFP) may in fact reflect technological divergence in a broad sense. This divergence could plausibly reflect the potential for structural changes in the global economy – namely digitalisation, globalisation and the rising importance of tacit knowledge – to fuel rapid productivity gains at the global frontier. Yet, aggregate MFP performance was significantly weaker in industries where MFP divergence was more pronounced, suggesting that the divergence observed is not solely driven by frontier firms pushing the boundary outward. We contend that increasing MFP divergence – and the global productivity slowdown more generally – could reflect a slowdown in the diffusion process. This could be a reflection of increasing costs for laggard firms of moving from an economy based on production to one based on ideas. But it could also be symptomatic of rising entry barriers and a decline in the contestability of markets. We find the rise in MFP divergence to be much more extreme in sectors where pro-competitive product market reforms were least extensive, suggesting that policy weaknesses may be stifling diffusion in OECD economies.

Suggested Citation

  • Dan Andrews & Chiara Criscuolo & Peter N. Gal, 2016. "The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy," OECD Productivity Working Papers 5, OECD Publishing.
  • Handle: RePEc:oec:ecoaac:5-en
    DOI: 10.1787/63629cc9-en
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    Cited by:

    1. Rauf Gönenç & Béatrice Guérard, 2017. "Austria’s digital transition: The diffusion challenge," OECD Economics Department Working Papers 1430, OECD Publishing.
    2. Dan Andrews & Filippos Petroulakis, 2017. "Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe," OECD Economics Department Working Papers 1433, OECD Publishing.
    3. Albert Bravo-Biosca, 2020. "Experimental Innovation Policy," Innovation Policy and the Economy, University of Chicago Press, vol. 20(1), pages 191-232.
    4. Lin William Cong & Zhiguo He & Jiasun Li, 2019. "Decentralized Mining in Centralized Pools," NBER Working Papers 25592, National Bureau of Economic Research, Inc.
    5. Jürgen Janger & Agnes Kügler, 2018. "Innovationseffizienz. Österreich im internationalen Vergleich," WIFO Studies, WIFO, number 61111, 06-2020.
    6. Andrés Rodríguez-Pose & Roberto Ganau, 2019. "Institutions and the Productivity Challenge for European Regions," European Economy - Discussion Papers 2015 - 116, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Ana Fontoura Gouveia & Christian Osterhold, 2018. "Fear the walking dead: zombie firms, spillovers and exit barriers," Working Papers w201811, Banco de Portugal, Economics and Research Department.
    8. de Ridder, Maarten, 2019. "Market power and innovation in the intangible economy," LSE Research Online Documents on Economics 100946, London School of Economics and Political Science, LSE Library.
    9. Müge Adalet McGowan & Dan Andrews & Valentine Millot & Thorsten BeckManaging Editor, 2018. "The walking dead? Zombie firms and productivity performance in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 33(96), pages 685-736.
    10. Erik Brynjolfsson & Daniel Rock & Chad Syverson, 2018. "Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics," NBER Chapters, in: The Economics of Artificial Intelligence: An Agenda, pages 23-57, National Bureau of Economic Research, Inc.
    11. Giuseppe Berlingieri & Patrick Blanchenay & Chiara Criscuolo, 2017. "The Great Divergence(s)," CEP Discussion Papers dp1488, Centre for Economic Performance, LSE.
    12. Emmanuel Dhyne & Cedric Duprez, 2017. "It’s a Small, Small World... A Guided Tour of the Belgian Production Network," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 84-96, Spring.
    13. Ricardo Pinheiro Alves, 2017. "Portugal: a Paradox in Productivity," GEE Papers 0070, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Jun 2017.
    14. Naudé, Wim, 2020. "From the Entrepreneurial to the Ossified Economy: Evidence, Explanations and a New Perspective," GLO Discussion Paper Series 539, Global Labor Organization (GLO).
    15. Evguenia Bessonova & Anna Tsvetkova, 2019. "Productivity convergence trends within Russian industries: firm-level evidence," Bank of Russia Working Paper Series wps51, Bank of Russia.
    16. Jonathan Cribb & Helen Miller & Thomas Pope & Jonathan Cribb, 2019. "Who are business owners and what are they doing?," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2019-12, Economic Statistics Centre of Excellence (ESCoE).
    17. E. Dhyne & C. Duprez, 2017. "The world is a village… The integration of Belgian firms into the world economy," Economic Review, National Bank of Belgium, issue ii, pages 25-36, september.
    18. Alexander Schiersch & Caroline Stiel, 2020. "Testing the Superstar Firm Hypothesis," Discussion Papers of DIW Berlin 1849, DIW Berlin, German Institute for Economic Research.
    19. Evguenia Bessonova, 2019. "Firms' Efficiency, Exits and Government procurement contracts," Bank of Russia Working Paper Series wps49, Bank of Russia.
    20. Oliver Kovacs, 2019. "Big IFs in Productivity-Enhancing Industry 4.0," Social Sciences, MDPI, Open Access Journal, vol. 8(2), pages 1-17, January.
    21. Rückert, Désirée & Veugelers, Reinhilde & Weiss, Christoph, 2020. "The growing digital divide in Europe and the United States," EIB Working Papers 2020/07, European Investment Bank (EIB).
    22. Jaan Masso & Jaanika Meriküll & Priit Vahter, 2020. "The Role Of Firms In The Gender Wage Gap," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 120, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    23. Wim Naudé & Paula Nagler, 2018. "Technological Innovation, Entrepreneurship and Productivity in Germany, 1871-2015," SPRU Working Paper Series 2018-02, SPRU - Science Policy Research Unit, University of Sussex Business School.
    24. Naudé, Wim, 2019. "The decline in entrepreneurship in the West: Is complexity ossifying the economy?," MERIT Working Papers 2019-030, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    25. Viktor Dementiev, 2019. "Productivity Paradox in Regional Dimension," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(1), pages 43-56.

    More about this item

    Keywords

    firm dynamics; knowledge diffusion; productivity; regulation; technological change;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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